Warming and Trade

As Congress debates health care, its recent work on legislation to put in place new controls on energy usage and associated emission of "greenhouse gases" (GHG) has receded into the background somewhat, at least as the mainstream media is concerned. One of razor-edged issues at play in the climate change "cap-and-trade" debate is the future competiveness of U.S. manufacturing operations under such a system, especially if the governments of current and up-and-coming commercial rivals are not planning to place such burdens on their industries.

The short answer to that, in trade-speak, is "border measures". Put simply, according to the legislation already passed by House of Representatives, after a certain point the U.S. will apply additional taxes on products imported from countries not part of an international climate change agreement — so that U.S. manufacturers are not completely priced into oblivion. There are a couple of ways to apply such taxes: either directly, like customs tariffs, or indirectly, by requiring importers to purchase credits to account for the energy/emissions made by the foreign manufacturer. The real problems can come about if an international climate change agreement is not reached.

Many policy and legal minds have been chewing on this issue, most recently those in the Government Accountability Office (GAO). In testimony and a report last month to a key Senate committee, GAO warned against the U.S. acting unilaterally to raise barriers to energy-intensive products, not only over fears of retaliation by trading partners but also whether such measures would be consistent with international trade rules. On that score, the World Trade Organization (WTO) and the United Nations Environment Program (UNEP) produced a report recently in which the organizations underscore the need to strike a true international deal on climate that supports trade liberalization and opening markets rather than creating new barriers. Of course, the devil — denizen of a warmish climate! — will be in the details.